“You’ll recall that claim from earlier in the year that Apple only paid a 9.8% tax rate on its profits. Cue much wailing and gnashing of teeth in the New York Times and other places,” Tim Worstall reports for Forbes. “The problem was that those doing the calculation seemed unaware of how the corporate tax system actually works: in arrears. In this time period you pay taxes on the profits you made in the last time period. How can it be any other way given that you’ve got to add up the numbers to see what profit you made?”

“Sure, there are estimations and advance payments and so on, the government doesn’t like to wait too long for its money. But the general principle still stands: what you pay over in actual cash in this time period is not the tax that is due from this time period. With that in mind, now that we’ve got Apple’s 10-K for 2012, we can have a look at how much they’re really paying in tax,” Worstall reports. “Apple’s own claim is as follows: ‘The Company’s effective tax rates were approximately 25.2%, 24.2%, and 24.4% for 2012, 2011, and 2010, respectively. The Company’s effective rates for these periods differ from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.'”

“This is the well known dodge: if you don’t bring foreign profits back to the US then you don’t have to pay US taxes on them. An entirely legal dodge it should be pointed out,” Worstall reports. “However, that’s not what they actually paid out in this financial year: ‘Income before provision for income taxes [$55.763 billion]; Cash paid for income taxes, net [$7.682 billion].'”

Worstall reports, “Divide one by the other and we get a tax rate of 13.8%. Which is certainly different from the 25.2% they claim. And no, this difference is not because of the offshore profits thing. That’s already been accounted for in the 25.2%. There’s several things going on here.”

MacDailyNews Take: As Worstall points out so well in his full article, Apple’s paid tax rate seems “low” because Apple’s profits have been growing so quickly from year to year and “to a large extent, corporate income tax paid this year refers to profits made last year.”

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20 Comments

As a shareholder, I would like to see Apple get far more aggressive when it comes to reducing their taxes paid. Every dollar retained by the company or paid in dividends is a dollar not spent on causing bloody mayhem around the world.

The tax system is so screwed up and convoluted that it is impossible to know how much effective taxes were paid. The corporate tax is criminal, since Apple, Inc. pays whatever taxes on the money it makes, then every board member, executive and employee pays taxes on the money they made bu working for Apple. Then there are taxes paid on fuel purchases, excise taxes, sales taxes paid on purchases, property taxes, and on and on. Taking Apple as 1 entity, and every Apple employee or member of the company added in, the amount of money that generates from Apple that ends up in a government drawer is insane. If we were to stop all of this nonsense of withholding and sales tax remittance (where employers and retailers are tax collectors) and have individuals pay this money out of pocket directly, there would be outrage. (Think about the phone bill where they itemize all the govt. fees and taxes. When I see the percentage the various govt. agencies get on the phones alone…)

The tax system- from Federal to local- is a screwed up mess and is the source of much of what is wrong with our political system. The dirty secret- not so little- is that most politicians of whatever persuasion like it that way.

Councilmen, Assemblymen, Representatives, Senators, Mayors, Governors and Presidents make political points and gain contributions by carving out exemptions from the Byzantine tax codes. Lobbyists become wealthy working for and gaining them. The power lies in the ability to change the tax codes or interpretation of them.

Regardless of what person and what party gains power after the next round of elections, without changing this mess we are condemned to continue to a far less effective, responsive and intelligent government.

Taxes have one reasonable purpose: to generate the funds necessary for the efficient operation of our government- period. Not to encourage or discourage behavior or whatever kind. Not to affect social change. Not to bribe private business to do the right thing.

Citizens of every stripe need to sharply question all office holders and aspirants regarding tax policy and hold their feet to the fire. We will not get the government we deserve and are already paying for until then.

Taxes have a *primary* purpose – to generated the funds required for the operation (hopefully efficient) of a government. However, if the tax methodology also promotes behaviors that are desirable and favorable to the society the government serves (e.g., reduction in pollution, R&D for advanced technologies, etc.), then I do not necessarily have a problem with that. I agree that government should strictly limit efforts at “social engineering.” The results often include unintended and undesirable effects.

Tax code simplification should be a high priority for the U.S. at all levels of government. By limiting and simplifying the avenues for collecting revenue, it is much easier to track and adjust to the changing needs of society. The complexity of the current mix of taxes, fees, licenses, etc. is astounding and full of contradictions and stupidity. For instance, I believe that the fees charged to enter National Parks should be used to support and maintain those parks…

I wonder if this amounts to the largest tax paid by any US company this year? $7B is a lot of dough. Next year this will rise to over $10B given the rise in profits.

If the govt want Apple to repatriate the overseas profit then they should allow them to bring the money back and be taxed to the US level minus the tax rate already paid in the other country. That seems reasonable and doesn’t double tax them.

The gov’t collects around $200B in corporate taxes so Apple’s $7B represents about 3% of that total.

The real truth of “corporate taxes” is that neither Apple nor any corporation actually “pays taxes.” They simply build a tax into the price of their products, and then send that tax – paid by the buyer – along to the government. Oh yes, the buyer also pays for the expenses of the corporation in figuring out how much of the buyer’s money paid to the corporation should be forwarded to the government.

In other words, corporate tax is simply a hidden tax on you and me by raising the prices of everything we buy. I don’t know about you, but I think I’d rather KNOW how much I’m paying rather than having it hidden from me.

I won’t bother responding directly to the Freek, because his “liberal” assertion is baseless. Both parties have spent way too much and been far too eager to “cut taxes” by borrowing money. These ridiculous attempts to categorize of people into two political parties and then stereotype their beliefs and behavior has to stop. I am highly conservative with respect to budgets and financing, but more progressive with respect to social and environmental issues.

The U.S. Federal Government needs to collect revenues sufficient to cover outlays. The budget needs to be balanced by some combination of revenue adjustment and cost reduction. Unfortunately, there are many factors that make it difficult to cut costs sufficiently to balance the budget at the current level of taxation. Those factors include an enormous defense budget (~$560B), massive debt service costs (currently around $600B, and this will grow as long term interest rates rise), and huge Social Security and Medicare/Medicaid obligations. These problems are not new – many extend back for decades and *we* (both our politicians and our citizens) have failed to address them. As citizens, we were content to let the national debt grow while accepting handouts from borrowed money and accepting the growth of a military-industrial complex that is impoverishing our nation. Mr. Reagan took pride in spending the USSR into oblivion. We are on a path to do the same thing to ourselves.

I greatly desire a simplified system of taxation to promote transparency in the collection of revenue and the distribution of that revenue to the various functions of government. That would aid in reducing the tax exemptions, loopholes, and special treatment that riddle our current system to the benefit of a few and the detriment of many.

While I agree that there is too much spending by both parties, the data shows a clear pattern. Start with Truman and look at the gross public debt as a percentage of GDP: Democrat presidents reduced it by an average of about 4%, Republican presidents increased it by an average of about 5%. Your call for transparency is the one thing that, were it enacted, could change the maze.

First of all, that “clear pattern” isn’t so clear once you remember that we don’t live in a dictatorship. Presidents don’t pass tax bills or budgets by themselves; it’s a process which involves Congress, too. Add in balance of power in House and Senate along with control of the Executive branch, and your “clear pattern” won’t be so clear anymore. The fact of the matter is that both parties are directly responsible for the mess we’re in.

Oh, and please cite your source for those numbers, because I’ve never seen them stated that way. Do they take into account previous administrations’ trailing budget impacts (on both parties’ numbers), or is it a simple correlation=causation comparison?

As far as I am concerned therew should never be a corporate Tax.
Here is why.
Every dollar paid in Tax by a corporation comes from their customers 9You and Me).
Corporations need to make money on every $$ spent, that includes Tax dollars, if a company has a set margin of 20% then you get to pay their taxes + 20%, I’d rather just pay the tax. For this to happen we would have to move to a strate tax on purchases. This is hampered by the undergroud economy IE that guy who works under the table. All this could be solved by getting rid of cash, unfortunatly that wount happen because if we could track every $ then our elected officials could not receive large sums of cash in brown paper bags.

Not many average Joe’s realize this, but unless a corporation is actually profitable, they pay ZERO Federal Income Tax. How can a company pay taxes if they are making no money? Makes sense, and yet so many uneducated people demonize companies that make a profit, or “huge” profits. But that’s the ONLY place where the Feds get money from companies.

If people want the Government to grow, give more handouts, create nation-wide high-speed rail or whatever they want the government to do and expand into, then they should want to see corporations reap in obscene profits. That’s the way it’s done.

And if people want that off-shore “dodge” money as the NYT’s puts it, back into the states, then the US Federal Government had better start competing with Corporate Income Tax rates, because the US has the highest rates in the world. Deliver a tax holiday (which Obama won’t do, but Romney will), and lower Corporate rates overall, and those hundreds of billions of taxable dollars will flow back into the US and be put to use.

Not going political, just going to what will or will not be done under various administrations as it pertains to tax rates. Can’t help it, it just is what it is.

They don’t pay taxes on sales or income they pay taxes on net profit before charges. The story of tax rates is a red herring. It’s 35% on profit after charges, not on income and that’s why the effective rate is 13% or so.